Recently, analysts have emphasized the importance of Bitcoin in realizing the hedging function of investment portfolios, partially replacing bonds. Over the past 12 months, investors have allocated 10% of their “60/40 portfolio” strategy to Bitcoin (BTC), achieving a risk-adjusted return of 90%. This performance was better than that of gold, whose return rate during the same period was only 51%.
A 60/40 portfolio is a strategy where investors allocate 60% of their portfolio assets to stocks and 40% to fixed-income instruments. ecoinometics’ post on X on June 16th highlighted BTC’s performance as of June 13th and compared the results with the total return.
The return rate of pure stock index funds is approximately 12%, and the risk-adjusted ratio is 0.55. Including bonds, the rate of return drops to around 8%, and the risk indicator is close to 0.45. Reallocate 10 bond points into gold, increase the ratio to 0.62, and raise the rate of return to 12%. Meanwhile, replacing 10 bond points with Bitcoin makes the ratio exceed 0.80 and increases the rate of return to 14%. This publication only considers the downside bias and sets the risk-free interest rate to zero.
These results have triggered people’s thinking about which macro assets can replace bonds to perform the hedging role. The answer points to scarce digital assets, and Bitcoin is the main digital asset. Kuiper describes Bitcoin as a network asset whose volatility usually benefits its holders. He cited an internal model indicating that for every 40% increase in the age of the network, the price will increase sixfold. Timmer further believes that the growth of the global money supply should boost the demand for non-sovereign scarcity. Both researchers pointed out that although it is difficult to quantify in real time, the adoption by institutions is constantly enhancing liquidity and improving execution.
ecoinometics’ comparison between Bitcoin and gold reinforces this view. Although gold has long enjoyed a reputation as a hedging tool, the improvement in risk-adjusted performance with the same scale of allocation and funded by the same bond sleeves is much lower. Bitcoin’s outstanding performance in terms of returns and downside adjustment risk indicates that when investors build a lasting multi-asset portfolio, they should consider this asset class along with precious metals and inflation-protected securities.
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- Polygon’s governance reform focuses on stablecoin payments and AggLayer
- A Swedish medical company raised 10 million US dollars to purchase Bitcoin, and its share price soared by 45%
